The Pound has declined against all of the majors following the Bank of England Minutes. The report showed that 7 members of the 9-member policy committee voted in favour of the recent £50 billion increase in asset purchases. Speculation had suggested that some members of the committee had voted to maintain the previous level of £275 billion, but the Minutes released this morning showed that 2 members had actually voted for a more aggressive increase of £75 billion.
David Miles and Adam Posen were the 2 members pushing for a larger increase in Quantitative Easing. They stated that Britain is at risk of a prolonged period of depressed demand causing inflation to fall materially below target in the medium term. They suggested that further QE increments at this moment in time would reduce the risk of further job cuts leading to spiralling unemployment.
The rest of the committee voted in favour of the widely expected £50 billion increase, which took the QE program to £325 billion, because a bigger increase “risked sending a signal that the committee thought the economic situation was worse than it was.” Their fears have proved accurate, with markets reacting sternly even to the suggestion of further QE.
The current £325 billion of asset purchases had little effect on the Pound as investors had for the most part already priced it into their estimations. Many expected the BoE’s report to show some kind of resistance to further economic stimulus – this would have strengthened the Pound as it would show confidence in the near term future of the economy.
The fact that some members were looking to increase QE further took the markets by surprise and triggered a Sterling sell-off. The Pound to Euro Exchange Rate has fallen by 0.35% to 1.187 and GBP has declined against between 0.10-0.80% across the board. The Pound to US Dollar Rate has fallen by 0.44% to 1.571.